Impact of Petroleum Products Subsidization to Energy Demand in Thailand

Abstract

The sensitivity of energy demand which is changed from price and income provides an impact on national security and climate change understanding. This study uses quarterly time-series data to investigate the patterns of price and income elasticity of petroleum products demand for Thailand and focuses on the impact of gasoline and diesel subsidization through the energy price crisis since 2004. By applying the log-linear energy demand model considering short-run and long-run elasticities, covering 1990 to 2006, focusing on the primary energy supply and final consumption reflected from the price and income, it is found that the price elasticity is inelastic while the income is very sensitive to energy consumption due to the greatly dependent on energy import and subsidization ratio among period. The price elasticities differ considerably by -1.53 to 1.30 during 1990 to 2003, -0.52 to 27.47 during 2004 to 2010, and -17.33 to -1.01 for 2011 to 2016. Fuel subsidies have been playing role in the price elasticity sensitivity while results also indicate that short-term gains from subsidy reform are much smaller than the long-term. However, the income elasticity has moved from inelastic to very sensitive or very elastic in Thailand. The policy recommendations in subsidization arrangement are also raised.